John Buell

Building Productive Enterprise

Remember when the US model of flexible labor markets, deregulated transportation, and innovative finance was supposed to be an example to the world? Freed from the constraints of minimum wages, burdensome product regulations, and troublesome unions, American corporations would develop qualitatively superior products at competitive prices.

Today our financial architecture is in shambles and the US is easily surpassed in most measures by such social democratic pariahs as Sweden and Germany, where unions are strong and wages  and vacation time  relatively generous. Meanwhile, what has happened to the core productive capacity in the US? Why have corporate managements failed to deliver on the promise of unleashing new waves of product innovation and productivity enhancements?

Writing in the February issue of Dollars and Sense magazine, University of California at Chico economist Michael Perelman points out that the US does lead the world in one category. That leadership role does a lot to explain our current travails. US corporations rely on a far higher percentage of supervisory personnel than any other advanced economy. In 1890, supervisory workers made up less than 1% of the US labor force. Today they represent nearly 16%. Rather than empower workers to take on more responsibility, employers restrict workers autonomy by relying instead on guard labor, supervisors.

Examples abound, and some may provide possible clues to recent news items. Perelman cites work on the introduction of computer controls in the paper industry. When these were first introduced the system was accessible even by front-line production workers. Workers used this new information to make profitable modifications of the production process, but management soon moved to limit access.

Why? Doesnt profit maximization drive management? The real question is profits for whom. In our current political economy, where ownership and control of capital assets is concentrated in a few hands (sometimes even stockholders have little voice) corporate executives worry about workers who become too knowledgeable. To admit that workers have something to contributebesides blindly carrying out the demands of managementundermines the ultimate rationale for managements dominance. Equally, knowledgeable workers are in a better position to demand higher wages. Broadening worker control of the production process may increase sales and total revenue, but management and stockholders may find they receive a smaller share of that increased pie. Thus capital markets and even many banks are often wary of lending money to such unconventional enterprises. In addition, beyond these narrowly economic motives, the exercise of power can become intoxicating in itself, a source of entrenched personal identity.

What are the consequences of workplaces organized around management prerogatives and distrust of workers? Most of us dont like taking orders or being treated as naturally devious or stupid. The rise of guard labor is not an inevitable feature of modern technology. The US employs about twice the percentage of supervisory personnel as does Sweden. Not only does the proliferation of supervisors add costs, it wastes workers capacities and sometimes even channels them into destructive ends.

The Los Angeles Times reports on unsuccessful efforts by production line Toyota workers to call managements attention to persistent quality problems years in advance of current recalls. In response to persistent and often demeaning supervision, workers in certain historical junctures have rebelled. Perelman cites a late sixties auto plant where workers revolted against the production of a poorly designed car. When management rejected their suggestions they initiated a counter plan by deliberately omitting parts.

The implications of this management model go beyond the individual firm. Perelman points out that one consequence of the decline of US manufacturing has been shrinking incentives to invest in productive activity here. When businesses are less innovative in quality and cost, customers are lost, and workers see their incomes decline. Capital then turns to finance, where the wealthy devise new schemes to loan money to a stretched middle and working class. Finance comes to represent a large share of corporate profits, dominates politics, and pushes a strong dollar, thereby further hurting exports. The finance bubble, full of deceit and manipulation, has itself been one leg of a squishy productive model. Important as it is to reform and rebuild finance, workers gaining a stronger voice and stake in productive enterprise is equally vital.